First Time Investment with Partner - SFH, Duplex, or 4 Plex

[Jennifer L.]

Hi Everyone!

My husband and I bought our first home January 2020 and looking to get into REI. We want to start small just to get our feet wet with a friend and purchase a SFH, Duplex, or up to a 4 Plex depending on the price. We live in Wisconsin and want to purchase nearby as I know the market here and we will be self managing. Our friend lives in LA (is originally from Wisconsin) and wants to start REI too. We all have great credit, down payment, and make good money working remote. This will be my friend's first property and he has never owned a home.

Since this is a partnership and we want to protect our own assets, is an LLC the best way to go? I know commercial rates will be higher. Is there any one for my friend to get a conventional type loan for lower rates, but have us included as owners for the home? I'm not sure he would qualify since none of us will be living on the property.

Thanks for the help!

[Jeff Cichocki]

Hey @Jennifer L.,

Glad to see you here. I'm from Wisconsin as well. I'm up the Green Bay area.

I personally love partnerships. Most people hear that word though and cringe. Partnerships often go sideways and end friendships. Why, because people "jump into bed" with no real plan and no really deep discussions about how things are run and managed day to day, how to deal with disagreements, roles & responsibilities. But, done right, they can catapult yor investments much faster than on your own.

Personally, I like the LLC route best, but that's because I have assets to protect. However, iIt's not necessary to have an LLC. If you decide (and only you can decide) to not use an LLC, as a minimum, get a really good JV agreement and adequate insurance to cover you and the property you buy for liability. I would suggest talking to your insurance agent about an umbrella policy if you don't already have one. Note: Most insurance companies require you to have the highest levels of coverage on your car insurance to get the umbrella coverage, so if you aren't carrying that already, plan to up your premiums there as well.

I would also suggest you talk to various lenders. Get to know several banks, credit unions and hard money lenders. Not all lenders are the same. Some like investment property, some don't. Some will lend on properties that need work, some won't. I would recommend having 3-5 lenders who are interested in working with you in your back pocket. Ask other investors in your area who they use. Referrals are always the best way to get in the door.

Good luck!